"There is only one power that determines the course of history . . . the power of ideas." — Ayn Rand

Saturday, October 11, 2008

The Obama Bear?

The crash in the stock market since the passage of the “bailout” by Congress is interesting on several fronts. Trying to pin down any particular cause as the culprit is always tricky. The cause could be that the market is seeing good money being thrown after bad. Or it could be the promised avalanche of new government regulation and control over the financial industry despite overwhelming evidence that government intervention caused and exacerbated the sub-prime crisis. Or it could be the blatantly fascist move by government to use printing press money to buy up real private assets like mortgages and commercial debt instruments, as well as equity stakes in private companies. Or the market could be seeing hyper-inflation ahead. That this may be a financial panic with little relation to the broad economy…similar to 1987…seems highly unlikely.

But there may be something else working here. It may be more than coincidence that the stock market’s slide parallels Barack Obama’s rise in the polls since the crisis exploded into the public eye.

Obama’s anti-American, anti-capitalist, anti-achievement, anti-individual rights agenda is clearly a major threat not only economically but to our freedom as well. At a time when capital accumulation (i.e., savings) is desperately needed to replenish the massive wealth destruction resulting from the housing bubble, he proposes to tax-soak the “rich”…the top 5%. At a time when emergency and large-scale deregulation of the economy is urgently needed, he falsely scapegoats the limited de-regulation that has taken place over the past few decades. At a time when the Federal government is devouring this nation’s stock seed of future industrial production (its investment capital) through massive deficit spending, he proposes trillions in new programs. At a time when American business needs talented leadership, Obama rails against CEO pay and threatens to place arbitrary limits upon what companies can pay their own executives.

He claims to be a champion of the middle class, yet condemns those who rise out of the middle class and into the “top 5%.” In other words, he condemns the most productive members of the most productive group for the sin of inventing the products, running the businesses, taking the calculated risks, creating the jobs…i.e., for succeeding. (I am not speaking here of the old, established rich, who are mostly in the socialist vanguard.) At the same time, he implores the young, the intellectual life-blood of America’s future, to forego their selfish pursuit of productive careers in favor of altruistic service to “the community” or the nation, and means to impose it through Washington’s growing control of local public schools. He proposes huge tax hikes camouflaged as “repeal” of the Bush tax cuts, including increases in the capital gains, dividend, and corporate tax rates. And then, he has the gall to speak of restoring something called “economic growth.”

But there is another side to this coin that the markets may be convulsing over. With a statist of their own at the top of the ticket, the GOP…at least its leaders…are not rising to defend free markets. Indeed, on many of these issues, the McCain-Palin ticket is actually trying to outdo Obama-Biden, as witness McCain’s sudden, panicky call for another $300 billion in “bailout” funds. The Obama rise is occurring in an intellectual vacuum. Capitalism is being bludgeoned, with only a few lonely voices rising to defend it (Only the Ayn Rand Institute is offering a fully consistent, principled, and moral defense of capitalism.)

Something historic is taking place here. The markets may very well be adjusting to the reality of another broad-based expansion in the size, scope, and intrusiveness of government…and the consequent shrinkage of economic freedom. If so, despite occasional rallies, we may be in for a long, painful slog like the 1966 to 1982 dead-market doldrums…or perhaps far worse.

But politics is strange, and a ray of hope pierces the gloomy prognosis of a potential Obama presidency. Ken Fisher, a money manager and Forbes columnist, has these interesting things to say:

I get the sense, talking to investors, that a lot of you are terrified of what an Obama presidency would do to your portfolio. You shouldn't be. Election outcomes don't affect markets the way you expect them to. We have a long history of elections and S&P 500 returns, and the pattern is pretty clear. First, years in which Democrats capture the White House are usually bullish years for the stock market… There is a reason for this pattern. The market expects the worst of a Democratic President and then discovers that he's not so bad for investors. It tends to rebound after the initial premonitions that a Democrat will win.

If we elect Obama and history's pattern prevails, expect…2009 to be above average [in stock market returns].

In inaugural years we discover that Democratic presidents are phonies and never meant most of what they said in their populist, anticapitalist campaigns. They could never get reelected if they really delivered on their campaign promises.

Maybe. If this were Hillary Clinton we were talking about, I would draw some consolation from Fisher’s observations. But Barack Obama is a Left-wing ideologue who is committed, on principle, to his altruist-collectivist-Marxist dogma. He believes that blacks got a raw deal after America's founding (which is true). But rather than embrace the philosophy of individualism (which is the only antidote to racism), he embraces the primitive idea of collective racial guilt and atonement. He also embraces the vicious altruist notion that the needy and the poor hold a first mortgage on the lives and wealth of the productive, because they are needy and poor. It is hard to overestimate the devastating consequences that an Obama-with-a-large-congressional-democratic-majority presidency can inflict on America…or the stock market…even in only one term.

So get ready for a stomach-churning month ahead in the stock market. After the recent collapse, a violent, though short-lived, rally can be expected, if past bear market experience is any guide. We may even have a thousand point up day immediately ahead. This would be followed by another plunge.

The key to the election, though, will be as we near Election Day. In 2004, stocks were weak in the early fall, then quietly strengthened toward the end of October. The market didn’t much like Kerry (although he certainly was no Obama.). Bush won.

I may be all wet here. But for a clue to the possible electoral outcome, watch the last few trading days leading up to the election. If my gut feeling about the Obama effect being a contributing factor to the market plunge is correct, a sudden strengthening in stocks could signal a McCain upset. If the market senses an Obama win, it will likely be flat, since it’s already getting killed by that fear.

About Me

Greetings and welcome to my blog. My name is Michael A. (Mike) LaFerrara. I sometimes use the pen or "screen" name "Mike Zemack" or "Zemack" in online activism, such as posted comments on articles. “Zemack” stands for the first letters of the names of my six grandchildren. I was born in 1949 in New Jersey, U.S.A., where I retired from a career in the plumbing, building controls, and construction industries, and still reside with my wife of 45 years. The purpose of my blog is the discussion of a wide range of topics relating to human events from the perspective of Objectivism, the philosophy of reason, rational self-interest, and Americanism originated by Ayn Rand.

As Rand observed: “The professional intellectual is the field agent of the army whose commander-in-chief is the philosopher.” I am certainly not the philosopher. But neither am I a field agent, or general. I am a foot soldier in that Objectivist army that fights for an individualist society in which every person can live in dignified sovereignty, by his own reasoned judgment, for his own sake, in that state of peaceful coexistence with his fellow man that only capitalist political and economic freedom can provide. While I am a fully committed Objectivist, my opinions are based on my own understanding of Objectivism, and should not be taken as definitive “Objectivist positions.” For the full story of my journey toward Objectivism, see my Introduction.

One final introductory note: I strongly recommend Philosophy, Who Needs it, which highlights the inescapable importance of philosophy in every individual's life. I can be reached at mal.atlas@comcast.net. Thanks, Mike LaFerrara.

Recommended Essays/Videos

Quotes I Like

Let me give you a tip on a clue to men’s characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it. Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter.—Francisco d'Anconia

I love getting older...I get to grow up and learn things. Madalyn, 5 years old, Montesorri student, and my grand-daughter

The best thing one can do for the poor is to not become one of them. Author Unknown

Nature, to be commanded, must be obeyed. Francis Bacon

Freedom is never more than one generation away from extinction. Ronald Reagan

Thinking is hard work. If it weren't, more people would do it. Henry Ford

Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries. Ayn Rand